GLAS Trust Company LLC Vs BYJU Raveendran & Ors (Supreme Court of India)
Conclusion: Supreme Court while adjudicating matters emphasized the need to follow the legal framework laid down by statutory provisions for the withdrawal of petitions and settlement of claims in a Corporate Insolvency Resolution Process (CIRP). The correct course of action for approval of the settlement and source of the funds for the settlement by the NCLAT would have been to stay the constitution of the CoC and direct the parties to follow the course of action in Section 12A read with Regulation 30A of the CIRP Regulations 2016.
Held: GLC was a US-based company serving as the administrative agent for a loan facility of USD 1,200,000,000 availed by an American subsidiary of Byju’s. The dispute arose from a “Team Sponsor Agreement” between Byju’s and the BCCI for the Indian National Cricket Team’s sponsorship. BCCI alleged default by Byju’s in paying an operational debt of Rs.158 crore under the agreement and proceeded to file a petition under Section 9 of the Insolvency and Bankruptcy Code (IBC) with the National Company Law Tribunal (NCLT). Consequently, the NCLT admitted the petition, initiating a Corporate Insolvency Resolution Process (CIRP). Subsequently it was claimed by Byju’s that they had cleared the Rs.158 crore debt, which the BCCI acknowledged and expressed their intention to withdraw the petition. The National Company Law Appellate Tribunal (NCLAT), in exercise of its inherent powers under Rule 11 of the NCLAT Rules, 2016 approved a settlement in relation to the dues payable to BCCI and proceeded to set aside the order of the NCLT. Appellant, who claimed to be a Financial Creditor, had moved an application before the NCLAT objecting to the approval of the settlement and questioned the source of the funds for the settlement. The objections of appellant were rejected by the NCLAT in the Impugned Judgement. The present appeal raised substantial questions about the legal framework governing the withdrawal of a CIRP; the settlement of claims after the admission of an application instituted by a debtor; and the scope of the inherent powers vested in the NCLAT under Rule 11 of the NCLAT Rules. It was held that Chapter II of the IBC provides that CIRP can be invoked in three ways: (i) by a financial creditor under Section 7; (ii) by an operational creditor under Section 9; and (iii) by a corporate debtor itself under Section 10. Section 5(11) of the IBC defines the “initiation date” as the date on which the financial creditor, operational creditor or corporate applicant makes an application to the NCLT for initiating insolvency proceedings, including CIRP. Upon admission of application, CIRP commences, moratorium is declared and an Insolvency Resolution Professional (IRP) is appointed who manages all further affairs of the corporate debtor. Further, claims are received from all the creditors and they are collated to determine the financial position of the corporate debtor and a Committee of Creditors (CoC) is constituted. The admission of the application and the due process following it brings forth significant changes which change the stakeholders from just the applicant creditor and corporate debtor, to all of the creditors of the injunct company. NCLAT’s exercise of its inherent powers under Rule 11 of the NCLAT Rules were rebuked by the Supreme Court stating that “When a procedure has been prescribed for a particular purpose exhaustively, no power shall be exercised otherwise than in the manner prescribed by the said provisions.” While allowing the Appeal, the Bench contended that the ‘inherent powers’ could not be used to subvert legal provisions that run contrary to the carefully crafted procedure for withdrawal. “The correct course of action by the NCLAT would have been to stay the constitution of the CoC and direct the parties to follow the course of action in Section 12A read with Regulation 30A of the CIRP Regulations 2016.” CoC had only been constituted during the pendency of the instant case before the Supreme Court and reiterated the liberty of the parties to seek a withdrawal or settlement of claims in compliance with the legal framework governing the withdrawal of CIRP. Thus, the escrowed Rs 158 crore, along with accrued interest was to be deposited with the CoC, who was to maintain the same in a separate escrow account until further developments in light of directions issuable by the NCLT.
